What's new
CMPort has announced the Qianhai Land Restructuring Agreement: 1）55% of CMPort’s land in Qianhai will be exchanged for the same area atDachan Bay Port for port and port-related uses; 2） CM Group’s land inQianhai （including the rest of CMPort’s land there）， will be reclaimedby Qianhai government and reclassified for commercial use, with totalvalue increasing from HK$14.77bn to HK$105.15bn. The land holdingcompanies are entitled to 40% of the appreciation value （40% ofHK$90.4bn, or HK$34.3bn）。 According to the company, disposal of theland interest will generate after-tax gains of HK$3.58bn, expected to berecognized in 2019, subject to the approval by shareholders. The landholding companies will form a joint venture （in which CMPort will owna 7% stake） with Qianhai government to develop new land （office,residence and commercial） in the Qianhai-Shekou Free Trade Zone.
Comments
Qianhai land starts to contribute value. After the deal, CMPort wouldnot only record a disposal gain and own interest in the Dachan BayPort, it may also benefit from the land development in Qianhai via a 7%equity investment. According to the CICC property team, real estateprojects developed on the new land in Qianhai are expected togenerate a net margin of 20% and NAV attributable to CMPort mayreach Rmb6.6bn （16% of the company’s market capitalization）。
Throughput growth slightly slowed in the first 11 months of 2018. In11M18, container throughput of CMPort grew 6% YoY （vs. 7.4% in2017）， or 4.3% YoY on an organic basis. Overseas ports （+13% YoY）outperformed domestic ports （+5% YoY） and we expect this trend tocontinue into 2019.
Valuation and recommendation
Our current earnings forecast includes the land disposal gain fromChiwan （HK$3,733mn recognized in 1H18） for 2018 but doesn’t includethe disposal gain for 2019. The stock is trading at 0.6x/0.6x 2018e/19eP/B and 5.3x/7.7x P/E （or 8.4x/7.7x recurrent P/E excluding one-offgains）。 The company plans to maintain its dividend payout policy （40–50% of net profit）。 Assuming a 40% payout ratio, we estimate its2018/19 dividend yield will be 7.6%/5.2% （or 8% in 2019 if landdisposal gains are included in earnings）。 Maintain BUY and HK$17.97TP, implying 10x 2019e P/E and 30% upside from the current price.
Risks: Throughput or land development misses expectations.